Bank of America to Loan An Additional $5B to Small Businesses By 2010

Outgoing Bank of America (BAC) Chief Executive Ken Lewis pledged on Monday to loan an additional $5 billion to small businesses in 2010, after the top executives for the largest U.S. banks, from Goldman Sachs (GS), JP Morgan Chase, (JPM) Citigroup (C) and others, met with President Obama.

President Obama reiterated his call during a White House meeting for the nation’s largest banks to increase lending saying he wants them to help the economy after taxpayers helped them.

WaPo: “America’s banks received extraordinary assistance” from the government, Obama said at a press conference following a meeting with the heads of the largest banks. “Now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.”

Lewis promised his bank will make at least $5 billion in additional loans to small business next year.

Banks of America, one of the world’s largest financial institutions, has extended roughly $12 billion in credit to small businesses through the first nine months of 2009, the company said, and modified loans for 49,000 small-business clients in the same period. In addition, Bank of America originated more than $215 billion in commercial non-real estate loans to medium-sized companies during that period.

“Bank of America is determined to do our part to help the economy grow next year and reduce unemployment by making every good loan we can make,” Lewis said.

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You’d think that the banks would have learned a lesson on the importance of income verification from this. Unfortunately, they have not. The banks are promising a new round of lending to Small Business, and they will meet this obligation through Small Business Credit Cards.

Want a credit card with a line up to $50,000? Check out Bank of America or Chase Bank. Here’s how their process works:

You will be asked to STATE your “household income”. Tell them whatever you want. They won’t even ask for a tax return.
Business Revenue: Banks don’t ask and they don’t care. If they do ask, they won’t verify it. So feel free to lie.
Credit reporting? Sure, the bank will pull your credit report to get your credit score. But then, just like the old days, the line will disappear from the radar screen. At Chase Bank, it appears that management encourages their business bankers to sell their Small Business Credit cards by advising the business owner of the benefits afforded to them when their new credit card is NOT reported on their personal credit report. The invisible business loan all over again. Shame on them!
If you have a good credit score and a personal card from Bank of America, give them a call. Perhaps they will offer you the same deal they offered me. When I called customer service, The BofA representative offered to convert my personal credit card to a business credit card because I was such a valued customer! When I assured her that I didn’t own a business, she insisted that I didn’t need one to get a business credit card. Perhaps our regulators would like to monitor the prevalence of this practice throughout the industry and prohibit the banks from circumventing the spirit and intent of the Credit Card Act.
The Question is…. WHY are banks doing this? Greed! (Of course)

Why would banks continue to lend without regard to any of the time-honored traditions of safety and soundness. First, unlike Revolving Small Business Credit lines, banks DO sell-off credit card exposure through securitization. The bankers, together with Wall Street, devised a way to reap the profits while, at the same time, absolving themselves of any losses. Securitization rules, in their current form, empower and even encourage banks to violate all prudent lending practices.

Despite warnings released in the OCC’s Survey of Credit Underwriting Practices 2009, stating:

A key lesson learned from the financial market disruption is the need for bankers to apply sound, consistent underwriting standards regardless of whether a loan is originated with the intent to hold or sell. The OCC reminds bankers that underwriting standards should not be compromised by competitive pressures or the assumption that the loan will be sold to third parties.

banks continue to apply lower credit standards to forms of credit they will sell off in the market than they do to credit they will retain on their books. Just compare the banks requirements for a $50,000 Business Credit Card to a $50,000 small business revolving line of credit. The first fails to verify ANY financial information and is sold. The second verifies financial information and the risk is held by the bank.